The global financial crisis re-ignited a division in economics between those who believe governments should boost demand through additional spending (Keynesians) and those who don't. The latter schools either don't believe in aggregate demand management at all or believe that to the extent demand can be boosted this is the job of central banks.
The main battleground for this fight has been in Europe over so-called 'austerity'. So successful has the demonisation of austerity been that the terminology has been used to describe efforts to reduce budget deficits in Australia and the US.
The anti-austerity movement has also seen the election of radical left wing party Syriza in Greece. However, the Greek economic disaster is not about Keynesianism vs Austerity. It's pure disaster management.
Greece has virtually exhausted its capacity to borrow any more money. National debt exceeds 150% of GDP, and it has already received tens of billions of Euros in bailout funds. That is, money taken from the taxpayers of Europe and handed to the Greek government.
The structural reforms proposed by the EU, the IMF and the European Central Bank have been portrayed as mean austerity measures. But the real and appropriate purpose was to protect taxpayers in Germany and elsewhere from further losses and force the Greeks to clean up their own economic mess.
This Vanity Fair piece, 'Beware of Greeks Bearing Bonds', accurately describes the problems including failure to pay taxes and tremendous waste in government spending.
A major reason Greece has had a hard time implementing meaningful reform is that many Greeks clearly don't feel they should have to bear the consequences of their government's actions. Hence the election of Syriza on a platform of more spending and undoing recent reforms.
But it is not the responsibility of other countries to provide an endless stream of funds to prop up a failed economy. It is not demand management for a country deep in deficit and deeper in debt to propose increases in government spending.
Greece's problems aren't caused by austerity. Austerity is the only option for Greece because of Greece's fundamental problems.
Simon Cowan is a Research Fellow at The Centre for Independent Studies.
Home > Commentary > Opinion > Disaster management, not demand management
Disaster management, not demand management
The main battleground for this fight has been in Europe over so-called 'austerity'. So successful has the demonisation of austerity been that the terminology has been used to describe efforts to reduce budget deficits in Australia and the US.
The anti-austerity movement has also seen the election of radical left wing party Syriza in Greece. However, the Greek economic disaster is not about Keynesianism vs Austerity. It's pure disaster management.
Greece has virtually exhausted its capacity to borrow any more money. National debt exceeds 150% of GDP, and it has already received tens of billions of Euros in bailout funds. That is, money taken from the taxpayers of Europe and handed to the Greek government.
The structural reforms proposed by the EU, the IMF and the European Central Bank have been portrayed as mean austerity measures. But the real and appropriate purpose was to protect taxpayers in Germany and elsewhere from further losses and force the Greeks to clean up their own economic mess.
This Vanity Fair piece, 'Beware of Greeks Bearing Bonds', accurately describes the problems including failure to pay taxes and tremendous waste in government spending.
A major reason Greece has had a hard time implementing meaningful reform is that many Greeks clearly don't feel they should have to bear the consequences of their government's actions. Hence the election of Syriza on a platform of more spending and undoing recent reforms.
But it is not the responsibility of other countries to provide an endless stream of funds to prop up a failed economy. It is not demand management for a country deep in deficit and deeper in debt to propose increases in government spending.
Greece's problems aren't caused by austerity. Austerity is the only option for Greece because of Greece's fundamental problems.
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